Nordea: Housing loan repayment capacity still good in Finland

Housing loan repayment capacity among Finnish households remained good in the last quarter of 2009. At the end of the review period, Nordea’s index value decreased to 31.0, in contrast to 31.3, according to statistics covering the third quarter of 2009. The index value was the lowest since 1989 when Nordea started the index calculation. In the Greater Helsinki Area and in Kotka, Lahti, Pori and Rovaniemi the index did not improve further, but the index value rose slightly.

Housing loan repayment capacity was lowest in Helsinki and highest in Kajaani. The monthly housing loan servicing costs of a household in Helsinki rose by EUR 20 to EUR 769. The monthly cost of a household in Kajaani decreased by EUR 6 to EUR 292.

Housing prices in the whole country increased slightly. The nationwide average home price is EUR 154,906. In Helsinki it is EUR 257,894, whereas the least expensive homes are in Kajaani, at the price of EUR 97,997.

Today’s record-low interest rates make housing loan servicing significantly easier. During the review period, the average interest rate continued to decrease from 2.3 per cent in the third quarter of 2009 to 2.0 per cent.

- As the index value is still based on the currently low interest rate level, the situation for homeowners is less favourable than it would seem. Moreover, the index has not decreased further in the Greater Helsinki Area. In central Helsinki the figures are not nearly the best ones, says Nordea’s Economist Reijo Heiskanen.

Homeowners’ behaviour appears strongly influenced by the cost of monthly loan payments, hence increased demand for housing loans towards the end of the year. The lower costs resulting from currently low interest rates should not, however, influence decision-making.

- The home purchase plans and loan servicing calculations should be made on the basis of an interest rate at least a few percentage points higher. At the prevailing interest rate level, a new housing loan should on no account be dimensioned to the upper level of the consumer’s repayment capacity. We also recommend an interest rate cap while interest rates are still low, says Anu Numminen, Nordea’s Private Economist.

Home price

Monthly loan

servicing cost

Index Q3/2009

Index Q4/2009

Change

All of Finland

154,906

462

31.3

31.0

-0.3

Helsinki

257,894

769

44.3

44.4

+0.1

Espoo

224,026

668

36.7

37.1

+0.4

Porvoo

145,229

433

32.3

28.7

-3.6

Vantaa

180,710

539

34.2

34.3

+0.1

Tampere

156,826

467

31.7

31.2

-0.5

Hämeenlinna

131,942

393

28.4

27.9

-0.5

Kuopio

131,251

391

28.6

27.3

-1.3

Turku

131,866

393

28.2

27.5

-0.7

Joensuu

127,718

381

28.0

27.7

-0.3

Mikkeli

120,346

359

28.0

26.6

-1.4

Lappeenranta

121,421

362

27.7

25.7

-2.0

Jyväskylä

132,250

394

27.0

26.7

-0.3

Vaasa

121,498

362

24.5

24.2

-0.3

Oulu

119,962

358

25.3

24.2

-1.1

Lahti

122,189

364

25.8

26.1

+0.3

Seinäjoki

111,974

334

24.7

24.0

-0.7

Kokkola

109,440

326

24.8

23.1

-1.7

Kotka

106,906

319

21.5

21.9

+0.4

Rovaniemi

110,822

330

21.9

23.2

+1.3

Pori

100,301

299

20.5

21.1

+0.6

Kajaani

97,997

292

21.1

20.4

-0.7

In Nordea’s index housing loan costs are calculated for a surface area of 76.8 square metres, which, according to Statistics Finland, is the average size of a home in Finland. The loan taken out to purchase a home is 70 per cent of the purchase price and the loan period is 25 years.

The basis for the index is that loan costs, excluding tax deductions, should not exceed 25 per cent of a household’s gross income. If the index is 100, the household spends 25 per cent of its gross income for loan servicing. The smaller the figure, the better the household’s ability to service the housing loan needed for the exemplary home of the index at present.